The National Bank of Cambodia (NBC) will today launch a new financial security intended to strengthen the country’s commercial banking system and help maintain liquidity during economic downturns, according to a statement released Sunday.
The securities, known as Negotiable Certificates of Deposit (NCDs), will allow banks to convert surplus deposits that they would otherwise deposit at the NBC for a negligible interest rate into securities that they can readily sell or use as collateral for inter-bank loans.
The NBC statement explains that the NCDs will also contribute to the creation of a fully-functioning inter-bank market by making it easier for banks with temporary shortages of deposits on hand to borrow funds from banks with short-term surpluses.
“This negotiable certificate of deposit can act as a short-period bond that holders can use to clear temporary shortages of deposits through selling and pawning,” the statement says.
Business Research Institute of Cambodia chief economist Hiroshi Suzuki said Sunday that the introduction now of the negotiable certificates was “good timing” for the country, as demand for commercial banking was growing rapidly.
“If the bank is providing finance to many borrowers, in many cases they cannot keep enough money for all those transactions, and if there is an inter-bank market they can access the funds,” he said.
“If Acleda has a surplus of money, and Canadia has shortage of money, now they can coordinate, and it is very good for both those banks.”
Mr. Suzuki added that banks currently could only deal directly with the NBC to manage short-term shortages and surpluses of deposited funds.
“Right now, if they have more money, their only way [to profit from it] is to deposit it at the NBC and the interest rate is very low,” he said.
NBC Director-General Nguon Sokha said Sunday that commercial banks could begin applying for NCDs in denominations of $500,000 starting today.
“We have been preparing this product for more than a year for the banking institutions to use,” she said, adding that the securities could also help ease economic crises, during which banks can freeze lending to each other for fear of solvency.
“If they have such collateral assets, there will be trust in the banking sector,” she said. “The world economic crisis hit the banking sector because the inter-bank system didn’t have such a collateral asset.”
ANZ Royal Bank CEO Grant Knuckey said Sunday that the NDCs would function similarly to Treasury bills issued in the U.S., which are low-yield bonds widely regarded to be highly liquid and safe securities.
“They are intended as a mechanism that banks—rather than putting surpluses [of deposited savings] into the NBC as deposits—they can instead purchase the NDCs and use them as a form of collateral if need be when dealing with other banks,” he said.
“Undoubtedly, it’s one step in the evolution to a fully-functioning inter-bank system,” he added.
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